Elections cause higher employment and unemployment rates

Weekly estimates of labour statistics from CMIE's Consumer Pyramids Household Survey provide a good sense of the direction in which the labour markets are moving. They are, therefore, a good predictor of what would the direction of change be in the monthly estimates of labour market indicators.

Weekly estimates of the unemployment rate during March 2019 for example, did indicate a declining trend. The unemployment rate initially was high and rising. It was 6.9 per cent in the first week and 7 per cent in the second week.  Then it fell in the last two weeks to 6.2 per cent and 6.4 per cent. As a result, March ended with an unemployment rate of 6.7 per cent, which was much lower compared to 7.2 per cent in February.

April weekly rates indicate a rise in the unemployment rate. The first three weeks of the month have seen the rate rise from 7.9 per cent to 8.1 per cent and then 8.4 per cent in the third week ended April 21. Each of these is higher than the unemployment rate in the weeks of March.

It is, therefore, very likely that the month of April will end with an unemployment rate that would be much higher than the 6.7 per cent print of March 2019.

Interestingly, the higher unemployment rate of April is accompanied by a higher employment rate. The average employment rate during the first three weeks of April was 40 per cent. This is a tad higher than the employment rate during the first three weeks of March, which was 39.5 per cent.

Evidently, we are likely to see an increase in employment and unemployment in April.

This is happening because there is an increase in the labour force participation rate. This merits some explanation.

An increase in the labour participation rate indicates that a greater proportion of the adult population is seeking jobs. Some of these already have jobs and some get jobs but some others don't. A serious problem that India faces is that its labour force participation rate is low compared to global standards. Fewer adults in India seek work compared to the rest of the world. So, it is good to know that there was a rise in the labour participation rate recently.

The labour force participation rate touched a recent peak of 44.3 per cent in the week of April 14. In fact, this is the highest labour participation rate seen in 59 weeks, i.e. since the week ended February 25, 2018.

The average labour force participation rate during the first three weeks of April 2019 was 43.5 per cent compared to 42.3 per cent during the first three weeks of March 2019. This is a sharp jump. The labour participation rate started to rise in the third week of March, i.e. the week ended March 24.

Now, we revert to the increase in the employment rate mentioned earlier. The employment rate is the proportion of the adult population that is employed. This proportion has increased marginally. It is worth celebrating that an increased labour participation rate was accompanied by an increased employment rate.

But, we also see a rising unemployment rate. The unemployment rate is the proportion of the labour force that did not get jobs. Note that unlike the employment rate, the unemployment rate is not a ratio of the total adult population. It is a ratio of the labour force. This ratio has

been rising.

So, we may summarise the current labour conditions as indicating a substantial increase in labour participation where some of the increased labour participation did meet with increased employment but, many others experienced unemployment.

It would be safe to conjecture that the increase in labour participation rate is an outcome of the current national election campaigns. Elections are labour intensive. There is a sharp increase in demand for labour to organize rallies and also attend to rallies, to campaign from house to house and to supervise booths, to manage social media, etc.

As the demand for labour increased from electioneering, the labour participation rate increased and so did the employment rate. The increase in the unemployment rate indicates that many more people are willing to take up this temporary employment than there are on offer. This is very interesting. It could indicate that the wage rates being offered for this work is high. Electioneering never suffers because of insufficient supply of labour. 

Farmers often complain of lack of labour on farms. Political parties seem to suggest that labour is available if you pay them well. But, the risk-adjusted returns from farming are arguably, not as lucrative as they are from politics.